Creating Impact through Acceleration of Lean Reporting

The last two years have been defining for corporate non-financial reporting in Europe. The introduction of the EU Directive on the disclosure of non-financial and diversity information (Directive 2014/95/EU) has set a roadmap that is to lead to increased business transparency and accountability on social and environmental issues. And the 28 EU Member States have been turning the Directive into national legislations so companies are now expected to comply with the new disclosure requirements when reporting over fiscal year 2017.

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Recap of EU directive on non-financial information

Our summary of the EU Directive essentials of non-financial reporting per 1.1.2018:

Who: Companies that have 500+ employees and/or a balance sheet exceeding 20 million EU and a net turnover of 40 million euro fall within the scope of the directive. Furthermore, public-interest entities such as credit institutions, insurance undertakings, and companies assigned as such by member states, also fall within this directive;

What: companies are required to report on the following items: environmental, social and employee topics, respect for human rights, anti-corruption & bribery issues;

Where: information is to be published in a company’s annual report or a separate report alongside the management report. Nevertheless it is possible to publish this separate report within 6 months of the balance sheet date, a reference in the management report is required;

How: in order to be compliant with the directive, companies should rely on International, EU-based and/or national reporting frameworks.

Next to the disclosure of non-financial information, companies are also obliged to publish a diversity statement for age, gender, and professional and educational background of their board members. The reporting will have to focus on the objective of the policy, how it is applied, and how it has been implemented. In addition, the results of the implementation are expected to be integrated in the company’s corporate governance statement.

Implementation of the EU directive in all member states: 96%

As the deadline for national transposition has expired, the current status of implementing the EU directive into national laws is currently 96%. Only Spain has not yet communicated its transposition measures. As almost all EU members have implemented the EU directive, it is the case that national laws may have stricter requirements than what is set as a legal boundary by European law. In Greece, for instance, companies with over 10 employees and a certain turnover threshold are already required to report according to the EU directive whilst countries such as France, Germany, and the Netherlands have not adjusted the eligibility rule and stick to what is legally required from Brussels.

Another interesting point to highlight are the penalties in case of non-compliance: all countries have decided to adjust their national regulation from what is required by EU law (safe harbor principle and auditors’ involvement). Germany for instance, has decided to place fines on companies that are non compliant, whereas the United Kingdom decides on a per case basis which penalties are most appropriate for the responsible persons invovled. In conclusion, all European Member States have started to adopt a basis for non-financial reporting with differentiation between national laws in terms of sternness.

The way forward: from reporting to creating positive impact

As companies are now required to comply with the new requirements on non-financial reporting, the first steps in increasing transparency are taken. A big data analysis on the status of reporting on non-financial topics (please refer to download section) reveals that currently European companies communicate most on Employee Compensation, Business Ethics, and Anti-Corruption & Bribery. In order to be fully compliant with the EU directive, communication on key topics such as Human Rights and Environmental Issues should significantly improve.

Further looking at the agenda of the European Commission, one major priority is marked: connecting the non-financial reporting with the impact on The Sustainable Development Goals (SDGs). European companies are already publishing on their efforts to contribute to the achievement of the SDGs, as they recognize their responsibility and the new value creation opportunities inherent in aligning their business strategies to the SDGs. The attached download contains a big data analysis on the communication performance on the SDGs. One of the key takeaways is that currently most communication is around SDG 5: Gender Equality. The least communication is currently around SDG 9: Industry, Innovation, and Infrastructure.

Accelerating reporting at your company?

If reporting is increasingly restraining your calendar, we can help you put more focus and get more value out of your efforts. Finch & Beak has a big data approach that helps you to best capture the topics most relevant for your business. In case you are interested, please contact Josée van der Hoek, Founding Partner, at josee@finchandbeak.com or +31 6 28 02 18 80 to find out how Finch & Beak can help you make more impact with less effort and accelerate reporting.

About Bas Nuijten

Sustainability professional with the aim to help organizations to continuously improve their sustainability strategies. | bas@finchandbeak.com